BILL ANALYSIS Ó
AB 997
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Date of Hearing: April 26, 2011
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
AB 997 (Wagner) - As Amended: April 11, 2011
SUBJECT : Professional fiduciaries.
SUMMARY : Exempts specified non-profit corporations and
charitable trusts from the definition of a "professional
fiduciary" (PF). Specifically, this bill :
1)Exempts from the definition of a PF, any 501(c)(3) non-profit
corporation or charitable trust that satisfies all of the
following requirements:
a) Is a public charity, as provided by the specified
provisions of the Internal Revenue Service (IRS) Code;
b) Has been in existence for at least five years;
c) Has total institutional funds of at least $2 million, as
provided; and,
d) Is acting as a trustee incidental to the purposes for
which it is was organized and meets at least one of the
following conditions as a trust:
i) Annual distributions are limited to any of the
following:
(1)A certain sum or fixed percentage of the net fair
market value of the trust assets, as specified;
(2)A guaranteed annuity or a fixed percentage of the
fair market value of the property, as specified; or,
(3)Income, including a pooled income fund from which
annual distributions are limited to income, as
specified.
ii)The value of the charitable interest was presently
ascertainable upon creation of the trust and is
tax-deductible under the federal Tax Reform Act of 1969.
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EXISTING LAW :
1)Establishes the Professional Fiduciaries Act (Act) and
provides for the licensing and regulation of PFs by the
Professional Fiduciaries Bureau (Bureau) within the Department
of Consumer Affairs.
2)Defines "PF" as a person who acts as a conservator, guardian,
trustee, personal representative, agent under a durable power
of attorney for health care, or agent under a durable power of
attorney for finances, for two or more persons at the same
time who are not related to the PF by blood, adoption,
marriage, or registered domestic partnership.
3)Exempts from the definition of PF banks or other entities
authorized to conduct the business of a trust company, as well
as public conservators, public guardians and other state
agencies, including a person or public officer employed by
one of these entities or agencies acting within the course and
scope of that employment. Also excludes certain
broker-dealers and investment advisors, as provided.
4)Exempts attorneys, certified public accountants (CPAs) and
enrolled agents (EAs) from licensure as a PF under the Act if
they are acting within their scope of practice.
5)Establishes the California Supervision of Trustees and
Fundraisers for Charitable Purposes Act (CSTFCPA), which
requires charitable trusts to register with, provide financial
disclosures to, and be regulated by, the Attorney General
(AG). Vests the primary responsibility for supervising
charitable trusts in California, for ensuring compliance with
trusts and articles of incorporation, and for protection of
assets held by charitable trusts and public benefit
corporations, in the AG.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author's office, "The
Act provides blanket statutory exemptions for attorneys, CPAs,
and EAs before the IRS - without imposing any requirements on
such parties to report to any authority on their administration
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of fiduciary assets. The Act also exempts trust companies,
Federal Deposit Insurance Corporation-insured institutions,
broker-dealers, and investment advisers, presumably because they
are all monitored by federal regulatory authorities. However,
the Act does not address charities, which are similarly
regulated."
Background . Charities are regulated by several federal and
state entities and subject to reporting and public disclosure
requirements to the federal IRS, the AG, and the Franchise Tax
Board. Charities are subject to civil suit, tax penalties, and
the termination of tax-exempt status for violations.
Charitable trusts . In 1969, the United States Congress passed
IRS Code Section 664, which created charitable trusts.
Charitable trusts are mutually beneficial financial transactions
between a donor and a charity. Donors are able to make a gift
of real assets to a preferred foundation or charity and receive
tax breaks and retirement income until the trust terminates and
the remainder of the assets are gifted to the charity. Many
organizations, including universities, colleges, and
foundations, manage charitable trusts as part of a long-term
sustainable plan to fund their programs. Many foundations and
charities hire employees to oversee various aspects of
administering charitable trust funds, including accounting, tax
reporting, investments, legal review, communications, etc.
CPAs, EAs, and attorneys are exempt from the Act.
AG . The AG regulates charities and political fundraisers that
solicit contributions to ensure that donations are not
squandered or misapplied. Charities are required to register
with the AG, who can revoke or suspend the registration of a
charitable corporation, trustee, commercial fundraiser, or
fundraising counsel. In addition, the charitable trustees and
fundraising professionals are required to register and file
annual financial disclosure reports with the AG, who
investigates and prosecutes charities accused of breaching their
fiduciary duties to properly administer charitable funds.
Act . SB 1550 (Figueroa), Chapter 491, Statutes of 2006,
established the Act and the Bureau for the purpose of licensing
and regulating professional conservators, guardians, trustees,
durable powers of attorneys, and others, as specified. Public
agency fiduciaries (public guardians and public conservators)
and those employed by banks and trust companies are exempt from
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this regulatory scheme, as are attorneys and certified public
accountants. PFs manage matters involving consumers' daily
care, housing and medical needs, and also offer financial
management services ranging from basic bill paying to estate and
investment management. PFs commonly manage services for
vulnerable seniors, disabled persons, and children. There are
approximately 320 licensed PFs in California.
Support . According to the University of California, "As a
charitable organization, Ýeach UC Campus Foundation] are already
subject to a number of state and federal reporting requirements
that ensure the transparency and accountability of their
actions. For example, the CSTFCPA includes a comprehensive
regulatory system that places the primary responsibility for
supervising charitable trusts in California with the AG, who
requires annual reporting on their activities and who has broad
authority to investigate their affairs if any breach of trust is
alleged. Further, charitable organizations are required to file
tax returns with the IRS that are open for public inspection.
Charities that offer charitable gift annuities in California, as
several Campus Foundations do, are required by the Insurance
Code to maintain a reserve trust for the benefit of annuitants
that is carefully monitored by the Department of Insurance.
Therefore, exempting charities like the Campus Foundations from
the Act will not jeopardize the public accountability or
transparency of these institutions."
According to the California State University, "When the Act came
into effect in 2008, it was unclear as to whether or not it
applied to charitable organizations and therefore ÝCSU] campus
foundations were uncertain on how to comply? While
clarification was sought by the Bureau, their response was also
unclear. The Bureau suggested that the Act could apply to some
of ÝCSU] employees, but it was unclear which functions performed
by the employee fell under the regulation. Because of this
non-definitive understanding and response, foundations are
unclear as to how to proceed. AB 997 will dispel this confusion
by making fiduciaries of charitable trusts exempt from the
requirements of the Act."
Opposition . According to the Professional Fiduciary Association
of California (PFAC), "PFAC has become increasingly more alarmed
at the repeated attempts to further dilute the effect and intent
of the Act. ÝPFAC does] not believe that there is any
compelling evidence that would necessitate the exempting of yet
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another group of individuals from the scope of this Act, which
has the effect of diminishing the intent and consequence of
current statute. For example, a member of the Special Needs
Trust Foundation Board (Board) has noted that it is critical to
have a licensed PF on their Board, that these and other similar
boards do not have the working knowledge to make critical
decisions required. And, they recognize the liability exposure
the Board members have without such accountability in place.
ÝPFAC] firmly believes that the intent of the legislature in
enacting the Act was to protect the public, not to exempt every
special interest group from compliance. "
Previous Legislation .
SB 1466 (Cox) of 2010, would have exempted specified trusts or
funds from the definition of a PF. This bill was held in the
Senate Judiciary Committee.
SB 1550 (Figueroa), Chapter 491, Statutes of 2006, established
the Bureau within the DCA to license and regulate PFs.
REGISTERED SUPPORT / OPPOSITION :
Support
Association of Independent California Colleges and Universities
Bakersfield Memorial Hospital Foundation
Biola University
California Baptist University
California State University
Claremont McKenna College
Jewish Community Foundation of Los Angeles
Kaspick & Company
Lucile Packard Foundation for Children's Health
Mount St. Mary's College
Northern California Planned Giving Council
Point Loma Nazarene University
Pomona College
Santa Clara University
Stanford University
The Episcopal Diocese of California
The Nature Conservancy
University of California
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University of San Francisco
University of San Diego
Opposition
Professional Fiduciary Association of California
Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916)
319-3301